Earnings call transcript Q1 2023

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Operator

Good day, and thank you for standing by. Welcome to the Q1 2023 Comfort Systems USA Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

to Shaeff, conference Chief like speaker to now Julie today, Accounting would hand over the your I Officer. Please go ahead.

Julie Shaeff

Thanks, Comfort Systems call. morning. Welcome quarter Good earnings Rica XXXX USA's [ph]. first to

USA. meaning our Our today, contain within of securities will What as expectations and as say based Systems of comments current press today plans applicable the and is well forward-looking releases statements regulation. we laws the upon Comfort the

and results Those forth expectations activities cause risks actual materially uncertainties be and in set might our plans that of different and include comments. those to operations future from our

can commentary well factors XX-K risk You covering in detailed a recent Form and read release listing as concerning our Form earnings. most our and our specific as XX-Q, press in these

has remarks. provided to website the been posted on found companion a The Relations is presentation section the our Investor as at A of company's presentation slide comfortsystemsusa.com.

and Executive Officer. and McKenna, me Chief Brian Lane, remarks. our Joining President Officer; George, today are the Officer; Trent on will open Bill Chief Chief call Operating Brian Financial

Brian Lane

Thanks, call All the you joining thank for morning, and everyone, on Good us today. Julie. right.

We earnings, strong flow, have with another to beginning and in unusually increase backlog. cash and revenue had great increased a pre-tax XXXX

are very teams amazing and for execution Our their hard delivered work. grateful we

Bill favorable resolution private of tax included few the are the to per discuss we in disputes. minutes, certain Excluding $X.XX gain will that related a in related that share $X.XX and claims

same-store and growth billion year XX%. unprecedented revenue revenue $X.X was Current of

a XX% increase a from Our backlog over which $X.X of year is now or billion billion, same-store $X.X ago. is

this and is quarter the modular flow Cash and growth demand of traditional evidence tangible backlog Our was exceptional. construction. ongoing

flow per strong increased $X.XX our to increase share. our our to This morning, reward cash commitment reflects per share shareholders. our also by This dividend $X.XXX continuing and we

review a in first, I to to will Bill call minutes. outlook But discuss our business financial I our performance. turn and this few over will Bill?

Bill George

Brian. Thanks

or XX% an $X.X year. compared the million of of to XXXX increase for $XXX quarter first was last revenue billion, So

services XX% segment increased million revenue million. or increased our $XXX $XXX by XX% or to mechanical XXX and segment Our -- electrical services

Thanks million acquisitions. or $XXX to remaining increase our revenue increased $XX by resulting million XX% from with

growth materials. for combined the inflation with increased and costs equipment including of resulted revenue higher Our past-through from activity effects

The same-store first that revenue the year than was quarter the rest is last prior over year. will influenced higher by of increase few percentage fact compound next lower revenue the quarters. And we the much comparables year

our So growth remain is percentage at levels. unlikely to these

finish year of year lot we a mid profit teens. revenue a the the But moving improvement million the year first full million expect $XXX growth now have trends XXXX Gross was for to Revenue same-store a overall, compared in to pieces. percentage $XX quarter, ago. for

on the Our profit for the was gross from in that wins quarter XXXX XX.X% XX.X% to XXXX, and this percentage gross profit claims year from compared percentage Quarterly strong in XX.X% first quarter including benefit XXXX. mechanical mentioned. Brian our in to declined XX.X% segment

and then That of construction, businesses. that revenue construction has profit the our growth decline portion modular is service Modular as a lower relative margins than gross construction driven by our largely in revenue. -- build

year in bookings, in remainder in projects. fact that the increases Margins unfold in XXXX. currently will influence construction, XX.X% predict early the many XX.X% factors be continue the our XXXX. the of to ongoing to Important with new margins is will modular we for cost our electrical and this include that challenging segment margins in inflation, materials intensive how to and rose surge from It

revenue. structural put revenue, are a of proportion modular as we some that might trends we achieved online. and managing strong be will at capacity on considerations XXXX the Modular profitability continued new ramp overall our good expect our is pressure that or growing higher near in and we bring margins we are up these as levels on also optimistic in we that margins XXXX Despite that

for was revenue of revenue $XXX or million to in compared for XX.X% quarter the million SG&A XX.X% the XXXX. of or $XXX expense first quarter

On and investments much levels. our was support inflation, due ongoing basis, $X.X higher activity the to to million SG&A same-store approximately

quarter increasing Our to doubled, year. operating million by last XXXX XX% We expect income in roughly the to XXXX from of XXXX. expense in still first interest quarter the increase $XX compared to

offset favorable was However partially higher this legal to income a outcome. the an increase quarter, interest by related expense and interest in temporarily

an million XXXX. for tax a $X R&D Our or was from $X.XX tax related incremental of benefit rate to for the $X.XX included XX.X%. quarter the conforming credit This adjustment of which

have rescind expenditures this restores and will immediate that that period of this Congress occurs. $X.XX gain in we conforming reverse the adjustment, deductibility to If research statement income

continue Although of XXXX was our $XX we to rate that tax first After approximately estimate considering affected the many net the have factors XX% tax normalized individual income or above, quarter to lately, a per all XX%. for share. rate $X.XX is items million

to we $X.XX quarter that year, the was recall last When that first prior a to share year, gain comparing important is years. massive booked last in of tax to related EPS incremental per it

years, compared our claim the outcomes. gains year. And on prior that removed $X.XX per quarter share basis, that to a about positive fourth of from increase increased both coming XXXX quarterly with was in our earnings With XX% our first those from $X.XX EPS as

last profitability our comparison XX% which of is simply to without $XX EBITDA, to tax compare looking at year-over-year way million. Another year from increased the complications

of benefited first deferred this main advanced terms of Free cash and upon was flow receipt for billings The favorable upfront we large driver XXXX as outperformance the $XXX payment of revenue from was million. quarter orders.

except advanced costs are additional will payments that received. from payments reverse to benefit project The these incurred, as are extent the advanced

quarters research a headwind extend result to cash note as a ongoing please Congress's of large failure flow facing of in We're current following. the the deductibility the So coming expenditures.

during will be of is the spread $XXX months Unless because the restored, of million, additional payments next portion XXXX our last five costs will business million a current expensing $XXX approximately over the nine of tax we of make to deductibility large years.

over from deferrals this add feet and our usual we than be purchase capacity square to vehicle resulting Also rate, availability vehicles higher higher X as a expenditures COVID. capital during modular at usual and million we will year as than

$ This prior quarter we roughly in is Overall, the that be million year. increase $XX XX CapEx million. we XX% XXXX an estimate will which to of million $XX spend expenditures, capital our compared had to

Our cash debt was from lower free to substantial cash quarter during at million debt us as of the the $XX allowed purchase even flow by our fund Eldeco reduce quarter. received and

XX shares, average repurchased shares our purchase since to XXXX first shares we price $XXX.XX continued average and over of also in $XX.XX. quarter XX,XXX at an the of acquiring adding million have to an price at the We

dividend noted, meaningful as well. implemented we increase this another quarter Brian As

all got That's with I Brian. have financials,

Brian Lane

comment you, on Bill. Thank rest a our outlook Okay. markets. backlog will discussing spend few I'm XXXX. of going I the for And our minutes to and also

backlog the Our first end of quarter at a the billion. was $X.X record

by with our this a Since or to backlog has in traditional increased in time, are we off invest and operations, $X.X XX% billion where site business new our same-store mechanical our bookings increases electrical new construction and continuing and last year substantial capacity.

three period backlog backlog produced the burn be During will months in XXXX, backlog will of With $XXX and bookings, despite number XXXX. quarter. in million a burn heavy our increased first the longer first over our audits advanced a include same-store that of

XX% industrial industrial Industrial volume. which time of life for in the This more processing, backlog. customers XX% a major sector, than Comfort food total sciences, of of includes This source of driver us revenue customers the quarter. were first and remain is were as [ph] that strong technology, the new first is

from technology revenue out we are in breaking this first and in XX% year. the in revenue industrial substantial prior technology Starting increase with is our the of our year, XX% quarter

our care mix, sector active. it Institutional markets include our part is also without changing government revenue, which represent much and revenue. of strong now of our concentrated of education, and a are that XX% service The But revenue. XX% health of business about commercial is small in and

revenue with this increase Construction, and XX% buildings construction projects last of as grew increased XX% while revenue virtually quarter rapidly to this same-store. with all was for quarter, buildings at in existing year construction new this compared of XX%. Service our projects by was XX%

Service are actions business, published support taking encourage with they annual report the in providing on pure and our of and and our hourly focus XX% work, in efficiency total X% to providing we operations. service revenues our and our was service including sustainability of just We we XX% of projects customers revenue and that buildings their continue to as addition the of sustainability revenue.

to I briefly in want out Before certain I close, our about things few business. trends point a

over of revenue, basis our quarter As that has means last service proportion construction which business. a percentage noted declined now several overall on our of as years the earlier, a is XX% this

just because not underperforming. up is the was This XX% service service absolute is contrary, this quarter. over To

was it overall our as is fact, in today as service business XXXX. large twice In

of has industrial Construction are you Also, increasing when technology and declining. increased sectors our at than other even just the ask business might looking represents, more. yourself if share

In look increased. opposed fact, sectors of absolute our every actually as one you when percentages, to this volumes at quarter,

thriving nearly then execution. experiencing, demand and continue growth our teams ongoing country XXXX. that later are their strong remain Systems superb to we that and about the Comfort prospects for strong across optimistic in because of possible way. continued every is And is that in excellence, our Thanks profitability the we

our the one best customers in can Our needs legacy communities. of priority we the industry, grow to remains our continue number our meet preserve to our so and and workforce investing of

for We and trust. are their grateful your

our over thanking employees their dedication. and Thank I'll XX,XXX for back you. hard want their questions. over end for I by Rica turn to to work it

Operator

the [Operator of first this Romero from we time, you. Thank At will comes & session. Company. question answer Instructions] of and Our the Julio line Sidoti question conduct

Your line is now open.

Julio Romero

activity the sales backlog saw morning. good type type or Maybe the Hey, modular? Thanks. Or there were customers on to could of organic what were it if other just all And backlog, quarter-over-quarter. the you the speak starting you Was there? drivers growth drivers? on

Brian Lane

out just Yes. one sectors. quite And up. increase we had multi Bill anyway, first. getting performance based coast-to-coast, then not backlog or we're But morning, one But good can of frankly, part broad it obviously strong follow of in its technology. It the in I'll go And Julio. country.

in active we it's it So very sure. And see stopping out for still short-term there. the don't

Bill George

increase in successful of got really want nice Yes, majority a order just this customer where it be companies. sequential Julio, quarter. And you'd backlog most a But backlog the modular our from broad-based. was to new in our lot a within it increase the we of

Julio Romero

to months of you about Got cash turning affect uncertainty How next or CapEx, it pipeline are then nine quarter have anything that maybe you that usage? but that's very And the managing And M&A second the there flow, your through cash so. strong does for to flow, uncertainty? cash regarding or helpful. the talk straight you

Bill George

strong this $XXX million great float about the We sheet. cash of one That's of things balance a having fantastically quarter.

of course year. So, it's the problem. rest needs to not that government of really need to it's federal else some the the money unfortunate won't a do. we from It impact over the borrow anything very that us But

Julio Romero

change I balance Got sheets? it. That not that that the And create their maybe makes opportunities change from to conversely, expenditures, guess, sense. may smaller to able R&D who to in deductibility some companies as then handle M&A be could

Bill George

them Maybe when some of realize it.

law. for I don't industry, be know the West I going to of that on they what by think is Most out. in up And our with have certain research figure it. where an it of cope as it's But really unaware devastating are clear I how companies, don't letter time will they'll companies. Coast, effect the might big smaller to certain company. they do able it places this. think we companies the it's of But them black be on a

like a the follow big you're ours, If you just to have company law.

Julio Romero

Got it. Thanks it much. on. I'll so pass

Brian Lane

Julio. Thanks

Operator

standby [Operator next very our caller you Please Instructions] for Thank much.

Bill George

Hello, Rica.

Operator

Yes.

of Sean at next Eastman line Our Markets. Capital from question KeyBanc comes the

now line Your is open.

Sean Eastman

my Hi Thanks start for the year. team. Great to taking questions.

Brian Lane

Thanks, Sean.

Sean Eastman

more But So, early. clearly in strong up have dynamic based. booking demand They message it backlog. this environment strength also a the customers you where is I kind their bookings. And we're in that duration we changed is the and guys are the still have remains There seeing of behavior. broad unique mean, of the kind

backlog two the those dynamics? So, around expectations how the set of kind kind around of would you of trajectory

Bill George

backlog this further up if was honest, So, surprised I our went being I quarter.

are our things a two commitments of new our I backlog are of some And a advanced to backlog is, It There point year. go One capacity. will down of the then this customer at advanced being some made the will made think late and some industry, to reasons, probably scarcity normal that. basis. to will we're in healthy is extraordinary that will I commitment. that now commitments But the lot suspect of trigger this leases our is productive just certainly induce out come that were booked enter at a that for less roll possible based our, really XXXX trend that us into places. that into later, back on by

decline the probably underlying really likely, But strong. moderates. get lead I a most And inflation is shorter. think the the demand also times as that, you'll real -- very said And for Having both see us. is demand just backlog It's moment is this really, backlog lumpy is when lumpy.

Brian Lane

of at going. backlog and picture and you we're if government the strong, well, of Sean, acts various of look the beginning money bigger sort out these pass of seeing as and the just state in terms all demand coming the engineering

that early we're as days of So, well.

strong the for think a while. to I going is So demand be environment

Bill George

rest because to listen our the factors right, what we we're transparent demand demand said weakness. that But no to are as I've be will down, you and years We'll backlog, about of say backlog of or I of demand sort a right that backlog, whether whether this that come stock, are of is just based are be about very there that's outside for very important For following of year, about very very see clear clear that's affecting that sign right? about to now we'll we if normalization. our be it's start if think

Sean Eastman

Yes.

drop for And I that look helpful. operating gross when are then clarity, you accretive, imagine just you would when to they is down right? margin modular margin, level. Very highlighted the are -- dilutive Okay. the at Bill, margins But that you

Bill George

because We and absolutely a they're can, cash we creative paid take doing so if flow not earnings, we can skilled for mind of than less we're take business be it. risk so which wouldn't a and to don't rather in keep with be labor. yes, overhead be in that risk, risk business. There's Well, But the we'd in smaller there's lower for we work what that lot do. and that done probably

that it's, that need a reasons of a lot for to even the though a of can if need nearly going licensed you licensed fitter workers than something, as pay pipe one who is really So on electricians at if are plant margin you you're skilled They're only same and premium. really, as certified. that's touch premium state a a in not higher the they person

Sean Eastman

-- operating So low, margin, higher you're return? trying lower but say Or to perhaps

Bill George

can and ability I scalability, week. and say making not plant lose No, doing expand. They can on years for work construction hire then there, them left forever. that to in at a to couple start stuff, to would you somebody days When on higher be they right. safety a all, might your and higher speed them and task. within then bring tasks they hire one in will training of Because a will valuable other you are train the incredibly money you worker as worker, money you up train that they're then There's a of and

a charge is demand scarce we scarce to, willing -- to our -- you for most if you just it’s than it's it are resources, with for take you want to different resources. we want So your if different demand more less a

Sean Eastman

there that's helpful. would revenue new but is continuing so kind detail refresh of Yes, lot in business maybe the the on into service of build how fast? side, the on drivers to the interesting? And a grow get construction a We be

Brian Lane

service up able tech. about McKenna innovative for commitment the into of a XX commitment training, and a organizational been side, heads Thanks years We've bringing use sales aspects that made grow ago, side, over our service pointing for to us Yes. leadership all it that that tools and the to been we're to wide made side tech Sean Trent we've out. business, talking we significant number

we we in still of So, hiring from base, companies some bought, of active are very salespeople, but both expanding our most it hiring technicians, same-stores. the

the for service that years, we us growth, many still continue still been many, because terrific more in profitability I And for fully is Sean. So XXX%. expect commitment that will And has embrace business. to the

Sean Eastman

there? is it under that is some, juicy just clear, share story is there? share market Or growth story kind the a so, there's to that market hood And a story, happening market be of

Brian Lane

Yes.

right? I technicians. some lot lot share, its skilled more think very of a just opportunity, I market We a there's of have think

in at or You energy upgrading look just the efficiency might building a system.

it's So of a both. I combination think

we're to think organization, now expand able the of our within I higher check companies service. our are services, capability we have all doing

one So probably thing things. XX is

Sean Eastman

for Thanks Great. it insights, I'll the over turn there. guys.

Brian Lane

Sean. Thanks, Yes.

Operator

question. standby Please you. next our for Thank

from comes of line Thalhimer Adam question with next Our Thompson the Davis.

line now Your is open.

Adam Thalhimer

Hey, quarter. guys. Great good morning,

Bill George

Thanks Adam.

Adam Thalhimer

Hey, tax. on the

I've fix flow question doesn't one cash Congress impact there's Bill, year? free if next So a had if is that,

Bill George

Yes.

saying enough, five business over be take interestingly has they're the that what to you expense your So to the have is of -- for expense they're doing this deduction years.

at sort see. a at point. we'll you whether I many the they I it'll it, especially definition thinking don't mean of But people and to of you it a five but credit. have find Adam owe if thing They over it's expenses fix businesses, than R&D at this business but headwind, next based smaller some so in much year this a fifth we research think deferred there people But zero irrelevant broader tax put years, auto money. so yes, it that would following in if And headwind, and the don't, year does, would be smaller or takes five in year, taking headwind year, the be because twos, a credits, XX% would that this a be of they this a be is there would frankly, for the year, be XX% actually would everybody year, the than would then you normalize years, moderate -- credit Sean, least it's for rather

Adam Thalhimer

coming? what this And that would another the how to similar if you December? then, one are you Are had had comes helpful. you the summer? still modular, in on you then thinking do capacity additions that Okay, And order online

Bill George

Well.

But to make our December So the investments make those that years. commitments to And permit one without we was really in raising permit was to period to decide permit to longer a we whether for in those get take they orders, right? other it us made mind couple us some it over of also prices. can keep a to really,

these have more take with work. so, some additions, And capacity to we

at we're space at some you But expand And how opportunity of make get take we risk the an are at reward which if we'll gives then is we at of right that the also expansion Right of that further, Some point. those levels. taller, point, decision on work to two and front opportunity an we're opportunity. -- a to what's in adding we'll us. a if look working now,

Brian Lane

We getting are terms on schedule running. of and in up him

Adam Thalhimer

Okay. can you lastly, the outlook? M&A And maybe then just on opine

Bill George

advanced a M&A concern amount we increase right. 'XX, about a people in So, had gains, capital with certain an in of

we So are have where we a or very companies gestation. high buying had very a are only And conviction mindset. in long we patient very

I coming year change. market the I watching we've in buy. But great the now we're of for -- that to most is think a we're this is were also it ready say be that know deal not. would Right company. this I one a if this zero surprised certainly admiration middle we company since sell continue of there a talked of ready deal to year. were did had We XXXX. was more year. or this middle to up year. if Eldeco could we When would don't But we're the they the I on we're

very these We've of conviction mindset. circumstances capital facing we different development been changing. say the And those compete we're in have The doing past. would the The a about with high I But for things. definitely companies have patient, they are patient us than very, always time. all cost who people is

In to track probably keeping development do COVID. three this more I've I've do year mind fact, last visits far than in than in I will the more done on done years

future. hard development sure to trying to the on working really we're So make we're

Adam Thalhimer

guys. it. Thanks, Got

Operator

Please by Thank our stand you. next question. for

Thielman of Our Brent D.A. the line next question from comes of Davidson.

line open. now is Your

Brent Thielman

Hey, morning. Good thanks.

Bill George

morning, Good Hey, Brent.

Brent Thielman

made out referring you to Bill, Hey, of R&D could business. put own Brian. lot you comment, industry? issue, a your on that Are folks of people tax a Hey, just within

Bill George

a treat quickly No, to research of companies I'm are business like I got really that's those year, research, that company is spend go startup mean, or expense to you part take margins. of world not to you as referring very you a what for of it's the company to have Many losing up only stand real have can it XX% somebody. every sheets to and companies, tax balance a money pharmaceutical the and if your do you on do in technological as that. dollar primary allowed sell as XX% pharmaceuticals, they'll to

talking So, I of kind about. I'm the thing think that's

Brent Thielman

Okay. you things that? deployment, the your coming capital buybacks next And in decide for sort of that mind deals is the over look quarters like guess own to you context top at before and and of of I strategy

Bill George

honest, years we're than year more two If being trended or our we better cash this ago a flow expected headwind. have than ago would has by

feels feel like, value guys are constraint. terrible It our and So people it like think executing doesn't really we pipefitters. cash have that I plumbers a

is don't see how issue we'll pay I interest. a big than other So, this

We positive a flow, less have little debt bit. interest whether on pay we're less interest, or or cash less earn in either we'll depending cash

Brent Thielman

Right.

Okay.

that hyperscale the of are robust about some market already seen? then, you overall. been years? It driver views a prospects. last compared I activities of have levels there you business, inquiries, been modular huge still out of pretty company center maybe data activity for varying talk to the does Could And And about couple reviews seeing? future how guys Okay. the the kind that guess, What's you've

Brian Lane

traditional go construction. concerned datacenter very, very both in frankly, plenty got of about the first. I'll Quite We market. work. and the is Yes, not it's we're still strong, activity modular

Bill George

them for have understand and get past. that kind partner this thing conversation make the they with are we hard than The about of the that quality people. people, us give them earlier they're to is guys, level risk they really, prominently ever of high And or and than in inquiry would to we as really really, more we good work with I do work higher typically ton They a been. a we have investments say is We really value. hyperscale them some to the expect. the of all, when into take they're cost the they it's more, of putting

So the demand I'm I'm high. we're that meet them. demand is for optimistic that way And optimistic actually best that right now to the

Brent Thielman

And market market? if Is in then, on to least, mostly the with customers it's specific single at expanding wrong. in side, think that I that sort new modular of one been focused potential me large now customer, I'm correct that

Bill George

hire So, sure it's expanding. from as order customer. premature business, it of things tell. one keen all, to they're somebody some for Well, got their We build They would that did be data make who else say interest. reality as these to hyperscale need need we us, they see were Really, frankly, is, them. far guys like big that centers, so can order get needed, a there first the And from is trial to like one how they we'll to was people. goes. But definitely we

oh, hire you to everything done say, is to we doing are people. can doing hire people what that what say be we're When people,

these hyperscale path think they guys, quality data what to center ask every production I taking. into when getting them, towards what they're doing these I high build is you data think hyperscale are things centers,

to path the us right, opportunity more for and that where for support a we nice grow that. there's here modular, to than provide And data so, are our of built getting a couldn't the possibly customers scalable they most math are good, really what overwhelming need. think not majority But the centers

Brent Thielman

margins ambitions sort any lastly, quarters over said guess with few Got match project bid you've turns think more I you're that it. presumably mechanical into I confidence margins the gives things seeing work And on new bound. us I time with electrical a getting and around that views attached margins that? the the past of just to in guess

Brian Lane

over last the really in Brent, increase sure for margins business electrical we've Yes. few in the steady had as years. the state a

I us that to to is think the forward going our like can challenging And we out work plenty at, that raise a good of for that's we're continue. prices work there sufficiently coming electrical There we is do. little bit. that

optimistic we see I'm continued So in really strength margin electrical business. the that will

Brent Thielman

guys. Thanks, Congrats quarter. right. great a all Okay, on

Brian Lane

thanks. right, All

Operator

Thank you. call back now Lane Brian would Okay. I to to for like remarks. the turn closing

Brian Lane

you, again, thank And just an everyone, outstanding what for interest mean, Comfort Okay. being doing once you employees is made. all diligent in job. our show happen for a commitment results your continued to Thank when Systems. really these just I

[ph] a great we We to XXXX. soon. the you are of and the has day to everyone looking the we for very are Thank optimistic you. hope remainder Hope and forward see summer on road

Operator

program. for in your participation conference. the today's This you Thank does conclude

You may now disconnect.

Comfort Systems USA (FIX) 27 Apr 232023 Q1 Earnings call transcript